Foreign Private Equity investors to Sell Online Stock Shares

Internet stocks could be in for more pain as more pre-IPO investors look to sell shares. As of March 2023, private equity and venture capital firms hold around $7 billion in listed Indian internet companies, as per the data compiled by Kotak Institutional Equities. Had it not been for market volatility, the amount would have been smaller, believes Kotak. 

“In our view, weak market conditions, coupled with large derating in some of these companies, may have limited the extent of such exits,” it said in the report.

The inflow of foreign direct investment in India has shot up over the past few years, and so has the outflow. Gross FDI outflows for overseas entities stood at $14 billion in H1FY23 as compared to $29 billion in FY22 and $18 billion in FY21, as per the report by Kotak Institutional Equities.

“While IPOs have slowed in the past 18 months, velocity of exit has remained elevated in secondary markets in recent months, based on our analysis of shareholding data and bulk transactions”, the report stated.

How FDI Composition Has Changed

FDI inflows have been shifting from communication, financial and retail services towards computer services and manufacturing. FDI inflow stood at $9.6 billion for manufacturing in 2019 and rose to $16.3 billion in 2022. For the computer services sector, it went up from $3.7 billion to $9 billion during the same time period.

“We expect steady ramp-up of investments in manufacturing driven by diversification of global supply chains, improving the competitiveness of India versus China and large opportunities in India’s energy transition,” analysts at Kotak believe.

Meanwhile, the pace of PE investments has steadily shifted from retailing to fintech and edtech over FY19-23. Though, the pace has reduced in the past year.

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